The world's second-largest maker of human plasma products CSL
Ltd. (CSL.AU) said Wednesday its first half profit fell 19% as the
surging Australian dollar shrunk the value of its offshore revenue,
illustrating the challenge Australia's mining boom is posing for
other sectors of the economy as demand for natural resources drives
up the local currency.
The blood products maker recorded a A$500.2 million net profit
for the six months ended Dec. 31, down from A$617.4 million a year
earlier. The previous result had been boosted by sales of the
company's H1N1 influenza vaccine during the swine flu pandemic.
The result was ahead of consensus. The market expected a net
profit of A$486 million, according to the median forecast of six
analysts surveyed by Dow Jones Newswires.
Chief Executive Brian McNamee said the company's underlying
business has continued to grow, including through licensing into
new geographic and patient markets.
"Given the challenges of currency headwinds, government
healthcare reforms and continuing weak economic conditions in a
number of countries where we operate, this is a noteworthy
achievement," said McNamee in a statement.
The Australian dollar's stellar rise on the back of strong
demand for the country's natural resources is taking a toll on
companies that earn much of their revenue offshore. The currency
rose 14% last year, surging through parity with the U.S. dollar,
helped by strong demand for commodities out of China.
CSL is the world's second-largest plasma company behind Baxter
International Inc. (BAX) of the U.S., although its position will be
challenged when the acquisition of Talecris Biotherapeutics
Holdings Corp. (TLCR) by Spain's Grifols SA (GRF.MC) is
finalized.
CSL's top-selling product is its liquid intravenous
immunoglobulin product, an antibody used in the treatment of blood
disorders, while human papillomavirus can cause cervical cancer. It
also makes flu vaccines and a human papillomavirus vaccine. With
major facilities in Germany, Switzerland and the U.S., CSL earns
the majority of its revenue outside Australia, making it highly
sensitive to exchange rate moves. The Australian currency's rise
reduces the value of CSL's offshore revenue when it reports in
local dollars.
Total revenue fell 9.3% to A$2.19 billion in the first half from
a A$2.42 billion in the same period a year earlier. Stripping out
the impact of foreign exchange moves and the one-off swine flu
vaccine sales a year ago, the company said its sales revenue rose
by 7.0%.
Sales of immunoglobins through the company's CSL Behring
business grew by 22% in constant currency terms. The strong growth
was assisted by Swiss-based competitor Octapharma's recall of its
Octagam product in the U.S. and European markets, which allowed CSL
to gain market share.
McNamee said it isn't known how long it will be before
Octapharma returns its product to the market although it's unlikely
to be before the end of April.
"We think there has been a small benefit achieved in the first
half, probably US$30 million of revenue or something like that," as
a result of the recall, he said.
"But having said that, I would say we have had healthcare reform
and mandated price reductions and rebates that were equal to or
greater than that impact. So it is a bit of swings and
roundabouts."
CSL expects full year profit to come in at the top end of its
previous guidance range, which was A$980 million-A$1.03 billion at
fiscal 2010 exchange rates. That represents about 10% growth in
underlying profit, and translates to a net profit for the year of
about A$950 million when current exchange rates are used.
"Trading conditions in the second half of this financial year
are expected to remain similar. The company remains well positioned
with a broad portfolio of products, a global market reach, and a
very strong balance sheet," McNamee said.
CSL shares fell 49 cents, or 1.3%, to end at A$37.02 in a flat
overall market.
"It is a very strong result but it would have disappointed some
investors who were hoping for an upgrade to guidance on the back of
the Octapharma recall," said David Liu, head of research at ATI
Asset Management.
The company will pay a first half dividend of 35 cents a share,
steady with a year earlier. The market was expecting a 36.7 cent
dividend, with forecasts ranging from 35 cents to 38 cents.
Linwar Securities analyst John Hester said it was "a bit
miserable" of the company not to increase the dividend, adding that
CSL stock is starting to look expensive.
Aside from the growth in immunoglobulin sales, other areas of
the business are growing in the low single digits, he said.
"The whole biopharma industry is struggling to come up with the
next big blockbuster. It's a great company. But it's a valuation
issue," he said.
CSL is seeking new areas to grow earnings after U.S. regulators
in 2009 scuttled the company's planned US$3.1 billion takeover of
Talecris. That acquisition would have boosted CSL's share of the
U.S. plasma market and put it within striking distance of market
leader Baxter.
In August, CSL launched a A$900 million share buyback to employ
accumulated excess cash that couldn't be used when the plan to take
over Talecris failed.
Hester said CSL stock is trading at 21 times current earnings,
compared to the overall market on 12.8 times, and also trading at
19 times forecast earnings.
Even stripping out the impact of currency moves and the one-off
prior year boost from swine flu vaccine sales during the pandemic,
sales revenue grew by just 7% overall.
"It's looking a little bit toppy," Hester said of the stock.
-By Rebecca Thurlow, Dow Jones Newswires; 61-2-8272-4679;
rebecca.thurlow@dowjones.com
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